The hierarchy of poor: the tension between favoring smallholder farmers or domestic consumers in Ethiopian agricultural development

Overview: illustrating the challenge in supporting producers and consumers through agricultural policies

A pressing challenge facing Ethiopia today is one that has long been a dilemma facing many African governments. This paper discusses the challenge of supporting smallholder farmers while ensuring benefits for consumers. Attaining a balance often involves a tradeoff when policy and economic decisions force a choice with no clear “pro-poor” solution – many of the rural farmers who produce staple crops are poor, yet many of the consumers who depend upon these crops are as well.

To illustrate the challenge facing Ethiopia, the example of tef export activities will be used. In January 2006, the government of Ethiopia banned the export of unprocessed tef grain. Tef is cereal crop that is indigenous to Ethiopia and has been produced in the Ethiopian highlands for thousands of years. Tef has high nutritional value and strongcultural significance. It is grown by6 million smallholder farmers, including both male and female-headed households, accounts for 15% of total calories consumed by Ethiopians, and is the dominant cereal grown in Ethiopia by area.[1]

The export banis a clear example of the difficult choices at hand. The ban enables the government to prioritize food security and domestic demand. However, this comes at a cost as the ban prevents Ethiopia from engaging in the growing global Tef market, which could boost GDP and benefit farmers. What does supporting smallholder farmers really mean? How does ensuring affordability for consumers affect the agriculture sector?

This paper aims to describe the tension in agricultural development solutions that aim to support both producers and consumers through the example of tef production in Ethiopia. It important to note, however, that this paper will not attempt to provide a clear policy recommendation but rather to illustrate the implications of both maintaining the tef export ban and lifting the tef export ban. As in many casesfor Ethiopia and Ethiopians, there is no clear correct answer. The author does not attempt to assert one. Rather, the Ethiopian policy that bans the export of tef grain represents a challenging question that promotes a continued debate amongst producers, consumers, and policymakers, as Ethiopia strives to successfully develop into a middle-income country.

History of Tef in Ethiopia and the 2006 ban on export of Tef

Tef is a hugely important crop to Ethiopia, both in terms of production and consumption. In a country of over 80 million people, tef is the one crop that is most powerfully associated with Ethiopians. It is used to make the staple cereal product, called injera, an Ethiopian form of bread. Furthermore, approximately 6 million households grow tef and it is the dominant cereal crop in high-potential agricultural woredas[2]. In terms of production, tef is the dominant cereal by area planted and second only to maize in production and consumption. However, it has been historically neglected compared to other staple grain crops, yields are relatively low, and some farmers under certain conditions sustain high losses which result in reduced quantity of grain available to consumers.

Agriculture is a major contributor to the national economy of Ethiopia, representing 41% of Ethiopia’s GDP.[3] The tef value chain is of vital importance, as the grain sector comprises a large part of the agricultural sector. Specifically, tef is one of the most important cereal crops of Ethiopia and there are many reasons to focus agricultural development on the tef value chain, including opportunities to:

Enhance the sustainability of the tef production process to increase the income of over 6 million smallholder farmers and so that the future potential of tef production in Ethiopia remains fruitful and intact.

Improve the availability of tef grain and tef-related products so that Ethiopian consumers, both urban and rural dwellers, can benefit from additional consumption of a highly-nutritious, culturally significant grain.

Create local economic multipliers resulting fromincreased tef-based employment that benefits the local economy through production and marketing activities.

Develop and strengthen tef value-addition opportunities by making different products.Tefcan be used in innumerable food products and every product that is normally made from wheat can be made with tef.[4]

As Ethiopia’s population has increased so has the demand for tef. From 2007 to 2008, the price of tef soared, hitting above 1,000 USD per metric ton, which is four times more than the 2000-2008 average of 250 USD per metric ton. In 2010, the tef price was still above 700 USD per metric ton, which created hardship for many Ethiopian families, who were forced to switch to other cereals as substitutes.[5] Still, tef has remained the preferred staple cereal for Ethiopians, as evidenced by persistently high prices in recent years.

Annual tef production has been increasing year after year by about 11%. Increased productivity is believed to contribute about 6% of that 11% growth with 5% attributed to expansion in total area cultivated to Tef. During 2009-2010, it was estimated that 3.2 million tons of tef was produced on 2.6 million hectares of land.[6] This is equivalent to 21% and 28% of the total cereal production and acreage in the country, respectively, making tef the leading crop among cereals and among other annual crops.

The composition of tef includes many chemical components that make it a highly nutritious cereal. In addition, since tef is a cereal, it is possible to use it to make products normally produced with other cereals such as wheat, for example, bread, pasta, pancakes, pizza and even some beverages. Given its composition, tef could play an important role as a “super food” in school feeding programs, as well as emergency food aid programs and a counteracting force to malnutrition in youth. Enhancing the industrialization of this crop will result in a more attractive and stable market for the producers and will incentivize the adoption of yield-enhancing investments.

Breaking down its nutritional content, tef has the highest amount of protein among the commonly consumed cereals in Ethiopia and its energy content is only surpassed by maize. In addition, tef has high levels of calcium, phosphorous, iron, copper, barium, and thiamin. It has a well-balanced amino acid composition, with lysine levels higher than wheat or barley and slightly lower than rice or oats.[7]A major contributing factor totef’s nutritional value is the size of its grain: the grain is extremely small compared to the other components of the tef plant (the bran and endosperm). Thus, during milling, it is impossible to separate out the endosperm from the bran so the whole grain is milled into flour. This makes tef flour highly rich in fiber and nutrients, because the bran and germ are the most nutritious parts of the grain. Importantly, tef is also gluten-free so it is well-suited to addressing growing global gluten-free demand which is driven both by the existence of Coeliac disease as well as a general health-conscious trend. Moreover, tef flour can be artificially enriched with specific nutritional components at the time of milling the grain. This process could be used to create value-added products with even more nutritional content, such as enriched injera, cookies, bread or cakes.

Given the undeniable significance of tef in Ethiopian history, diet, and culture, it is unsurprising that tef has found its way into national policy. In January 2006, former Prime Minister MelesZenawi enacted a policy that banned the export of unprocessed tef grain. Interpretations of the motivations behind this ban vary, but consensus largely indicates that this move was intended to fight commodity price inflation that was taking place at an alarming rate in Ethiopia. Additionally, it was meant to focus tef production on addressing domestic food security to ensure that this highly nutritious, indispensable grain continued to serve domestic demand only.Arguably, this move was in favor of Ethiopia’s tef consumers, many of whom are poor and find tef increasingly unaffordable.

Despite the importance of these goals, the export ban has been less than successful at achieving them. Since 2006, tef prices continue to increase as domestic demand for tef outweighs production. In addition, domestic production of tef continues to be outmatched by supply. In fact, tef remains a luxury cereal and consumption is mostly an urban phenomenon. People in rural areas are unable to afford much tef and rely mostly on maize, sorghum, wheat and barley to make injera and other staple foods. The average urban Ethiopian derives 600 calories per day from tef (which comprises roughly 30% of total daily caloric intake), whereas for rural residents this figure is closer to 200 calories per day[8]. This disparity has nutritional consequences, since tef is the most nutritionally valuable grain in Ethiopia.

The struggle to support producers and consumers – why does it matter in Ethiopia today?

The tension between favoring producers and consumers in food policy is not a new one. African governments have struggled in the past to design policies that promote improved livelihoods and quality of life for their poorest citizens, but of course this is not an easy feat. In the case of West Africa, many food product boards designed initiatives targeted at stabilizing prices of commodities such as cotton and cocoa to increase access and affordability for urban consumers. However, this came at a steep price as these measures often decreased farmers’ income to provide this subsidy to its urban poor. Attempting to design policies and navigate agricultural development of a country that supports both producers and consumers is an ongoing struggle, and one that is particularly relevant for Ethiopia at this time.

Ethiopia is facing a number of changes. The Government of Ethiopia recently created and endorseda National Growth and Transformation Plan, whichis the blueprintintended to transform Ethiopia’s status from a low-income country to a middle-income country by 2025. Rapid industrialization and development is taking place across many sectors, particularly driven by international investment of states such as China and Korea.

In addition, for the first time in more than 20 years, Ethiopia finds itself with new leadership. Former Prime Minister MelesZenawi was a strong advocate for agricultural development and, in particular, stated food security for his country as one of his main goals, in the context of the country’s experience of major famines in the last 40 years. His government created an “acceleration unit” similar to those created Taiwan and South Korea. In 2010, a federal regulation was passed to establish the Ethiopian Agricultural Transformation Agency, dedicated to supporting the achievement of the Growth and Transformation Plan targets and sustainably improving the agriculture sector. In particular, an effort is currently underway, led by major stakeholders including the Ministry of Agriculture, the Ethiopian Agricultural Research Institute, and the Ethiopian Agricultural Transformation Agency, to create a National Tef Strategy aimed at doubling national tef productivity in five years through concerted efforts to disseminate new technologies that improve yield.

Should these efforts succeed, it is not clear how this increased tef productivity will be managed, and who the ultimate beneficiaries will be. Will Ethiopian consumers benefit, as tef is made affordable and more available, potentially even at a lower price than current market prices? Or will it be the Ethiopian smallholder farmers, who will experience a substantial increase in income as their sales volumes jump, supplying tef to more Ethiopians and potentially international buyers? The new national leadership must determine the role and nature of Ethiopian agricultural activity and must specifically decide how Ethiopian agriculture will engage on the global trading floor.

The benefits of the Tef export ban

There are many strong benefits that support the maintenance of the 2006 ban. First, regardless of the specific motivations behind the initial policy enacted in 2006, the ban signals that domestic food security is the Government of Ethiopia’s key priority. It communicates to the country and to the world that Ethiopia is focusing its priorities on support its poor consumers, for whom affordability and availability of tef is almost a non-negotiable aspect of Ethiopian life. If the export ban was lifted, this could have undermine this assertion. Tef is already unaffordable for many Ethiopians and exportingcould have the potential result of raising prices further, making tef even more unaffordable at home.Given existing concerns of inflation and rising commodity prices, a policy shift could worsen conditions for Ethiopia’s lowest economic class if managed incorrectly.

Of further concern, enabling international export of tef grain could simply eliminate domestic supply if all tef production was used to supply international demand. Given the highly nutritious nature of tef, many experts believe that tef plays a vital role in promoting good nutrition for the average Ethiopian. The stable meal of injera and shirotwot (a stew made of chickpeas) has enough protein to meet daily requirements. In particular, the consumption of injera contributes to the prevention of many diseases and conditions that can result from an unbalanced diet, including anemia, obesity, osteoporosis, and diabetes.[9]Introducing exporting could contribute tomalnutrition, as Ethiopians would be forced to switch to cheaper substitutes such as sorghum, barley, or wheatas a staple cereal in their diet. Already, the continued price increase of tef has forced many Ethiopians, primarily its rural consumers and even tef smallholder farmers, to dilute injera with other cereals, such as sorghum.

Opening the doors to international trade would expose Ethiopia to additional risks. For example, land conflicts may ariseas tef-producing areas would become increasingly valuable particularly given limited tef land expansion opportunities. This predicament faces Bolivia today, as exports of its indigenous ‘superfood’ quinoa have soared and led to malnutrition in youth and violence over land ownership.[10]Finally, the ban limits Ethiopia’s exposure to international trade risks. This in turn limits the vulnerability of tef smallholder farmers who benefit strongly from a consistent, demand-driven tef market today. One of the new sources of agricultural finance risks is speculation, which may cause added price volatility, and end up hurting both smallholder tef farmers as well as Ethiopian tef consumers. There is also a risk of bio-piracy: by allowing the export of tef grain, Ethiopia is more vulnerable to foreign national or multi-national companies’ attempts to modify and patent its indigenous cereal.

On this point, theFridtjof Nansen Institute (FNI)created areport that investigated the disastrous effects of an 2005 agreement that provided access and benefit-sharing of tef genetic resources between two parties, Ethiopia and a Dutch company, HPFI. The agreement gave HPFI access to 12 Ethiopian tef varieties, which would be used for exploring tef-based food product development that could be marketed to the European and US food markets, given tef’s gluten-free and other highly nutritious properties. In return for access to these genetic resources, HPFI was to share both financial and other benefits with Ethiopia. FNI’s report describes the unsatisfactory outcomes for Ethiopia of this agreement. Specifically, Ethiopia only received 4,000 USD financial return as HPFI went bankrupt, however other companies set up by the same owners were able to continue to exploit the benefits of Ethiopia’sgenetic resources without sharing further returns.[11]

The benefits of keeping an export ban in place to favor Ethiopian consumers and protect smallholder farmers in certain respects are significant. However, this policy decision comes at a large opportunity cost for Ethiopia as it continues to limit its involvement in the global cereal market. In particular, this ban seems to prioritize the plight of Ethiopian’s consumers over its smallholder farmers, who could stand to gain significantly from engagement in international trade.

The potential benefits of trading Tef internationally

Much like the agriculture sector of Ethiopia in general, the tef market is also changing; there is a growing global demand for tef and other countries are capitalizing on this through international trade of tef. Many countries around the world have begun to produce and export tef. The largest international sellers of tef include: South Africa, Cameroon, Canada, Netherlands, United Kingdom, India, USA, China and Uganda. While Ethiopia is the world’s largest producer of tef by volume, it cannot currently benefit from this trade by exporting its indigenous crop.

The ability to export tef could significantly impact smallholder famers’ incomes as well as spur Ethiopia’s agricultural development. In addition, involvement of international players in the tef market could serve to accelerate the development of what is now a relatively immature market, given its low volumes, fragmentation, and lack of significant value-addition and product development.

The tef export policy allows for international export of processed tef, largely in the form of tef flour or ready-to-eat injera. Presumably, this nuance in the policy is intended to drive value-addition of tef products in Ethiopia. However, while the export of fresh and dry injera is increasing, it remains limited. For example, in 2011, the export volume for fresh and dry tef for Ethiopia was 1,800 metric tons. This is 0.21% of the overall national tef market production (which is roughly 3.5 million tons) and represents only 56 million Ethiopian birr (which is roughly 3.1 million USD) of export revenue.[12]

By exploring opportunities to export tef grain, Ethiopia’s GDP stands to gain. Tef grain prices have increased annually by 12% from 2008 to 2012, driven by consumer preference for tef and population growth.[13] The benefits that tef market suppliers reap from this price trend are a strong indication of the great economic potential of international tef trade. If traded internationally, global demand for tef will raise prices further and incentivize production volume increases, which will directly drive economic growth. Exporting tef grain would therefore increase export earnings, increase GDP, and help achieve the goals of Ethiopia’s Growth and Transformation Plan.

The rapid development anticipated by opening the market to export would also benefit smallholder farmers. Farmers’ income could be significantly increased, as demonstrated by current tef market prices, for example, tef is currently traded in Ethiopia at about 800-1,000 USD per metric ton, compared with a price range of 2,300-2,600 USD per metric ton in the U.S.A. Thus exporting would directly increasing the income of farmers as well as benefitting the national tef market.

The current tef market is extremely underdeveloped, due largely to fragmentation and price variability. Firstly, the market lacks large-scale processing or purchasing to capture economies of scale. For example, Mama Fresh Injera, one of few large-scale buyers, purchased only ~0.12% of the market in 2012. Secondly, price volatility, caused by seasonal variation and a lack of standardization, negatively impacts farmer liquidity and consumer consumption patterns. Introducing international demand would drive efficiency through commoditization of tef.

Finally, this commoditization would be attained through the creation of large-scale activities that would be necessary to support exporting, such as processing, storage, and the addition of tef to the Ethiopian Commodity Exchange. These changes would increase farmer profitability by lowering high production costs and would also indirectly benefit Ethiopian consumers through long-term price stabilization (though equilibrium price is likely to be slightly higher than today). Rationalizing the tef industry would generate large wins for smallholder farmers – and the market overall – through lower production costs and increased revenues from domestic sale and international export.

If Ethiopia were to overturn this ban and allow tef grain to be exported, it is possible thatfarmers would benefit from higher international prices, there would be improved domestic availability of tef at affordable prices, and the Government of Ethiopia would receive export earnings. Regardless of the specific outcomes, lifting the ban would alleviate the opportunity cost incurred daily as Ethiopia limits its involvement in international tef trade, particularly as other countries (e.g., India, United States) produce and export Ethiopia’s indigenous crop. Enabling tef grain export with smart controls could help Ethiopia to attain its vision of preventing future famine. The question facing Ethiopia’s political leadership today is whether or not the potential benefits of such a decision outweigh the dramatic potential risks and setbacks of a policy that keeps tef affordable and available at home.

Deciding the direction of its agricultural development

As stated above, this paper does not attempt to design a policy recommendation either for or against the existing tef export ban. It is a situation fraught with complications and rooted in deep historical significance. This is a clear example of the all-too-common tension that African governments face between serving their poor consumers and supporting their producers, many of whom are also poor smallholder farmers. Ultimately, the case of tef export will be one of many tests facing Ethiopia’s new leadership. In order to drive agricultural growth in Ethiopia, its leadership must decide how it will proceedswith regard to engaging the international agricultural sector. This decision will prove significant for the future of a rapidly developing, internationally appealing country such as Ethiopia. It will signal the manner in which national leadership intends to deal with other economic and political decisions regarding agricultural development, and will have significantly impact Ethiopia’s mission to achieve its National Growth and Transformation Plan targets.

Nadia Viswanath is a former management consultant from McKinsey and Company, where she focused on public and nonprofit sector work. She is a graduate of the Stephen M. Ross School of Business at the University of Michigan, where she also studied international development, focusing on post-colonial modernization in French West Africa. Currently, Nadia works as an external consultant in agricultural development for an Ethiopian government agency, focusing efforts on development of tef production strategies in collaboration with the Ethiopian Ministry of Agriculture.